Equation Analysis Sheet

Example of Equation Analysis Sheet

• Transaction:  a financial event that causes a change in financial position

Example One

• A business buys a truck for $20,000

            Increase of Truck                    20,000                        
            Decrease of Cash                    20,000            

Example Two

• You pay Apple $1000 of the $7000 you owe them

            Decrease Accounts Payable                1000
            Decrease Cash                                     1000

Example Three

• An inspector comes and visits and suggests improvements in certain areas

            Not a transaction because it did not change financial position

• It is important to realize that after a transaction is recorded, the fundamental accounting equation must be in balance
• The same amount of money must affect both side of the equation
• A source document is a business paper which documents a transaction
• Bills
• Receipts         
• Cheques

GAAP: Objectivity Principle

• Accounting will be recorded on the basis of objective evidence.
• In short, every account would do the books the exact same way given the same evidence